Times Internet Ltd., Gurgaon V. Addl. CIT, Special Range- 9, New Delhi

ITA 2210/DEL/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 9073 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-08-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2014-2015
• Appeal Filed On: 02-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Earning of tax free income; Revenue expenditure; Capital expenditure; TDS; Rule 8D
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B, NEW DELHI BEFORE SH. AMIT SHUKLA, JUDICIAL MEMBER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER (THROUGH VIDEO CONFERENCING) ITA NO. 3124/DEL/2018 : ASSTT. YEAR : 2014-15 ADDL. CIT, SPECIAL RANGE-9, NEW DELHI VS M/S TIMES INTERNET LTD., 10, DARYAGANJ, NEW DELHI-110002 (APPELLANT) (RESPONDENT) PAN NO. AA BCT1559M ITA NO. 2210/DEL/2018 : ASSTT. YEAR : 2014-15 M/S TIMES INTERNET LTD., 5 TH FLOOR,ECSTASY IT PARK, PLOT NO. 391, UDYOG VIHAR, PHASE- III, GURGAON-122016 VS ADDL. CIT, SPECIAL RANGE-9, NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. AABCT1559M ASSESSEE BY : SH. MUKESH GUPTA, CA & MS. NEHA GUPTA, CA REVENUE BY : SH. AJAY KUMAR, SR. DR DATE OF HEAR ING: 02 . 0 8 .20 2 1 DATE OF PRONOUNCEMENT: 06 .0 8 .20 2 1 ORDER PER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEALS HAVE BEEN FILED BY THE REVENUE AND THE ASSESSEE AGAINST THE ORDERS OF LD. CIT(A)-16, N EW DELHI DATED 29.01.2018. 2. IN ITA NO. 3124/DEL/2018, FOLLOWING GROUNDS HAVE BEEN RAISED BY THE REVENUE: ITA NO.2210 & 3124/DEL/2018 TIMES INTERNET LTD. 2 1. THE LD. CIT (A) HAS ERRED ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN NOT APPRECIATING THE F ACT THAT AO MADE THE DISALLOWANCE IN ACCORDANCE WITH SEC. 14 A R.W.R 8D OF THE I.T ACT ONLY. 2. THE LD. CIT (A) HAS ERRED ON THE FACTS AND CIRCUMSTANCES OF THE CASE BY DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF EXPENS ES ON ACCOUNT OF SALE OF CONTENT. 3. THE LD. CIT (A) HAS ERRED ON THE FACTS AND CIRCUMSTANCES OF THE CASE BY DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF SOFTWARE EXPENSES. 4. THE LD. CIT (A) HAS ERRED ON THE FACTS AND CIRCUMSTANCES OF THE CASE BY DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF DEPRECIATION CLAIM OF SOFTWARE. 5. THE LD. CIT (A) HAS ERRED ON THE FACTS AND CIRCUMSTANCES OF THE CASE BY PARTLY ALLOWING THE ADDITION MADE BY THE AO ON ACCOUNT OF CONSULTANCY EXPENSES OF LEGAL AND PROFESSIONAL EXPENSES. 3. IN ITA NO. 2210/DEL/2018, FOLLOWING GROUNDS HAVE BEEN RAISED BY THE ASSESSEE: 1. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-16 HAS ERRED BOTH IN LAW AND ON FACTS IN UPHOLDING DISALLOWANCE OF ENTIRE SUM OF RS. 600000/ - TOWARDS CONSULTANCY CHARGES FOR VALUATION OF SHARES UPON MERGER OF ANOTHER GROUP COMPANY, CLAIMED BY THE APPELLANT COMPANY AS REVENUE EXPENSES. 1.1 THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS FAILED TO APPRECIATE THAT THE EXPENSE S ON MERGER ARE ALLOWED @20% IN FIVE CONSECUTIVE YEARS U /S 35DD. ACCORDINGLY, RS 120000/- SHOULD HAVE BEEN ALL OWED IN THIS AY AND BALANCE IN NEXT 4 YEARS. 2. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-16 HAS ERRED BOTH IN LAW AND ON FACTS IN UPHOLDING DISALLOWANCE OF SUM OF RS.5,50,000/- TOWA RDS CONSULTANCY CHARGES FOR CONSULTANCY RELATED TO THE ONGOING WEBSITE MAGICBRICKS.COM OF THE APPELLANT IN REGULAR COURSE OF BUSINESS. ITA NO.2210 & 3124/DEL/2018 TIMES INTERNET LTD. 3 2.1 THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS FAILED TO APPRECIATE THAT THE TOTAL E XPENSES PAID TO CONSULTANT RS 61,60,754 ARE PURSUANT TO THE AGREEMENT SPECIFYING VARIOUS BUSINESS RELATED SERVI CES, ON ACCOUNT OF WHICH A SUM OF RS5610754/- WAS ALLOWED B Y AO AS REVENUE IN NATURE, THUS THERE IS NO JUSTIFICATIO N OF A DIFFERENT# INFERENCE FOR THE REMAINING RS 5,50,000/ -. ITA NO. 3124/DEL/2018 A.Y. 2014-15: (REVENUE) DISALLOWANCE U/S 14A: 4. DURING THE YEAR, THE ASSESSEE EARNED DIVIDEND FR OM MUTUAL FUND OF RS.1,03,60,745/- AND SUO MOTO DISALLOWED AN AMOUNT OF RS.5,57,215/- U/S 14A. THE AO BY RESORTING THE PROV ISIONS OF RULE 8D(2)(II) COMPUTED DISALLOWANCE TO RS.96,28,05 2/-. 5. THE LD. CIT (A) DIRECTED THE AO TO RECOMPUTE THE DISALLOWANCE U/S 14A BY CONSIDERING THE INVESTMENTS FROM WHICH DIVIDEND HAS BEEN EARNED BY THE APPELLANT COMPANY A ND RELYING ON THE ORDER OF THE SPECIAL BENCH OF ITAT IN THE CA SE OF CIT VS VIREET INVESTMENTS PVT. LTD. 82 TAXMAN 415, WE HERE BY DIRECT THAT ONLY THE INVESTMENTS WHICH YIELDED THE EXEMPT INCOME BE CONSIDERED FOR COMPUTATION OF DISALLOWANCE U/S 14A R.W. RULE 8D. DISALLOWANCE OF EXPENSES ON ACCOUNT OF SALE OF CONT ENT: 6. THIS ISSUE PERTAINING TO DISALLOWANCE OF EXPENSE S ON A PRESUMPTION BASIS WITH REGARD TO THE INCOME RECEIVE D ON SYNDICATION SERVICES HAS BEEN A REPETITIVE ISSUE FR OM THE YEARS 2006-07 TO 2014-15. THIS ISSUE HAS BEEN DECIDED BY THE HONBLE DELHI HIGH COURT IN ASSESSEES OWN CASE IN ASSESSME NT YEARS 2004-05 AND 2005-06 IN ITA NOS. 178 & 188/2016 DATE D 14.03.2016 FURTHER IN ASSESSMENT YEAR 2006-07, 2007 -08 AND ITA NO.2210 & 3124/DEL/2018 TIMES INTERNET LTD. 4 2008-09 IN ITA NO. 716, 724 & 753/2017 DATED 06.09. 2017, THE ISSUE HAS BEEN ADJUDICATED IN FAVOUR OF THE ASSESSE E. SINCE, THE ISSUE HAS BEEN REPETITIVELY HELD IN FAVOUR OF THE A SSESSEE AND SINCE THE LD. CIT (A) HAS FOLLOWED THE EARLIER ORDE RS OF THE TRIBUNAL, WE DECLINE TO INTERFERE WITH THE ORDER OF THE LD. CIT(A). SOFTWARE EXPENSES AND DEPRECIATION CLAIM OF SOFTWAR E: 7. THE ASSESSEE INCURRED AN EXPENDITURE OF RS.35.59 CRORES ON ACCOUNT OF SOFTWARE, CONTENT AND WEB HOSTING. TH E AO DISALLOWED AN AMOUNT OF RS.75.55 LACS OUT OF THE EX PENDITURE HOLDING THAT THE SOFTWARE UTILIZED IS CAPITAL IN NA TURE. THE DEPRECIATION ON SOFTWARE CLAIMED @ 60% BY THE ASSES SEE HAS BEEN SCALED DOWN TO 25% BY THE ASSESSING OFFICER. 8. THE LD. CIT (A) DELETED THE ADDITION BASED ON TH E DECISION OF THE HONBLE DELHI HIGH COURT IN ASSESSEES OWN C ASE IN ASSESSMENT YEARS 2004-05 AND 2005-06 ALSO IN SUBSEQ UENT YEARS 2006-07, 2007-08, 2008-09. SINCE, THE MATTER OF SOFTWARE UTILIZED IN CONTENT PRODUCTION, THE SOFTWA RE EMBEDDED WITH HARDWARE IS AN INTEGRAL PART OF THE COMPUTER E QUIPMENT, THE ISSUE HAS BEEN REPETITIVELY HELD IN FAVOUR OF T HE ASSESSEE AND SINCE THE LD. CIT (A) HAS FOLLOWED THE EARLIER ORDERS OF THE TRIBUNAL, WE DECLINE TO INTERFERE WITH THE ORDER OF THE LD. CIT(A). LEGAL & PROFESSIONAL EXPENSES: 9. THE ASSESSEE CLAIM AN EXPENSES OF CONSULTANCY CH ARGES OF RS.12,94,46,194/- AND 10,67,61,340/- UNDER THE HEAD LEGAL AND ITA NO.2210 & 3124/DEL/2018 TIMES INTERNET LTD. 5 PROFESSIONAL EXPENSES. THE DETAILS OF THE EXPENSES ARE AS UNDER: CONSULTANCY CHARGES DATE NAME NARRATION AMOUNT REMARKS 31/03/2014 RAJU & PRASAD CHARTERED ACCOUNTANTS FINANCE PROVISION 2012- 13_TDS RETURN,CERTIFICATES 120,752 PRIOR PERIOD EXPENSES 31/03/2014 ERNST & YOUNG LLP FINAL MILESTONE_FINAL HEARING_HIGH COURTJVIERGER 522,362 MERGER EXPENSES, CAPITAL EXPENSES 31/03/2014 S.B.G. & CO VALUATION AND SHARE SWAP RATIO_MERGER WITH TBSL PR 600,000 MERGER EXPENSES, CAPITAL EXPENSES 31/03/2014 ERNST & YOUNG LLP FINANCE PROVISION 2012- 13_VARIOUS SERVICES 621,825 PRIOR PERIOD EXPENSES 31/03/2014 DIPTI TANDON CONSULTATION FEE FOR SPECIFIC PROJECT 550,000 CAPITAL EXPENSES TOTAL 2,414,940 LEGAL AND PROFESSIONAL EXPENSES DATE NAME NARRATION AMOUNT 19/12/2013 ASP ADVOCATES LEGAL CHRGS_MERGER OF TWL AND TML WITH TIL LEGAL S 150,000 19/12/2013 ASP ADVOCATES LEGAL CHRGSJV1ERGER OF TWL AND TML WITH TIL LEGAL S 150,000 31/01/2014 ASP ADVOCATES FILLING THE 2ND MOTION PETITION WITH HCJV1ERGER LEG 150,000 31/01/2014 ASP ADVOCATES ISSUANCE OF NOTICE TO RD,ROC,OL BY DLH HC_MERGER L 100,000 31/03/2014 ASP ADVOCATES PROV 13-14_LEGAL CHRGS TWRDS MERGER_REPLY TO RD/OL 106,750 TOTAL 656,750 10. THE AO HELD THAT SOME OF THE EXPENSES RELATING TO SHARES SUBSCRIPTION, MAKING TO DUE DILIGENCE REPORT ARE NO T ALLOWABLE AS REVENUE EXPENSES AND THEY HAVE TO BE CAPITALIZED OR AMORTIZED. THE AO DISALLOWED AN AMOUNT OF RS.24,14, 940/- OUT OF CONSULTANCY CHARGES AND RS.6,56,750/- OUT OF PRO FESSIONAL EXPENSES. THE LD. CIT (A) HAS GONE THROUGH EACH AND EVERY ITEM OF EXPENDITURE AND ALSO THE COMPUTATION OF INC OME WHEREIN ITA NO.2210 & 3124/DEL/2018 TIMES INTERNET LTD. 6 AN AMOUNT OF RS.21,39,865/- SPENT ON ACCOUNT OF MER GER EXPENSES HAVE BEEN SUO MOTO DISALLOWED BY THE ASSESSEE. 11. ON GOING THROUGH THE ENTIRE FACTS, THE LD. CIT (A) HELD THAT AN AMOUNT OF RS.6,00,000/- SPENT TOWARDS VALUATION OF SHARES FOR THE PURPOSE OF MERGER OF THE COMPANY AND RS.5,5 0,000/- PAID TO INDEPENDENT CONSULTANT ARE IN THE NATURE OF CAPITAL EXPENDITURE. 12. SINCE, THE LD. CIT (A) HAS GONE THROUGH THE DET AILS OF EXPENDITURE AND SINCE THE ASSESSEE HAS ALREADY DISA LLOWED AN AMOUNT OF RS.21,39,865/-, WE HEREBY HOLD THAT THE G ROUNDS OF APPEAL OF THE REVENUE ON THIS ISSUE CANNOT BE SUSTA INED. ITA NO. 2210/DEL/2018 A.Y. 2014-15: (ASSESSEE) 13. WITH REGARD TO THE AMOUNT OF RS.6,00,000/- CONF IRMED BY THE LD. CIT (A), THE LD. AR RELIED ON THE JUDGMENT IN THE CASE OF CIT VS MONNET INDUSTRIES 332 ITR 627(DEL.) AND CIT VS PRITHVI INSURANCE COMPANY LTD. 63 ITR 632. 14. SECTION 35DD OF THE INCOME TAX ACT STATES AS UN DER: AMORTIZATION OF EXPENDITURE IN CASE OF AMALGAMATION OR DEMERGER. 35DD (1) WHERE AN ASSESSEE, BEING AN INDIAN COMPANY, INCURS ANY EXPENDITURE, ON OR AFTER THE 1 ST DAY OF APRIL, 1999, WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF AMALGAMATION OR DEMERGER OF AN UNDERTAKING, THE ASSESSEE SHALL BE ALLOWED A DEDUCTION OF AN AMOUNT EQUAL TO ONE-FIFTH OF SUCH EXPENDITURE FOR EACH OF THE FIVE SUCCESSIVE PREVIOU S YEARS BEGINNING WITH THE PREVIOUS YEAR IN WHICH THE AMALGAMATION OR DEMERGER TAKES PLACE. ITA NO.2210 & 3124/DEL/2018 TIMES INTERNET LTD. 7 (2) NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF THE EXPENDITURE MENTIONED IN SUB-SECTION (1) UNDER ANY OTHER PROVISION OF THIS ACT. 15. WE FIND THAT THE SECTION 35DD CLEARLY SPECIFIES AMORTIZATION OF EXPENDITURE IN CASE OF AMALGAMATION AND DEMERGER. SINCE, THE EXPENDITURE IS IN CONNECTION W ITH THE VALUATION OF SHARES RELATING TO MERGER, THE SAME NE EDS TO BE TREATED IN ACCORDANCE WITH THE PROVISIONS OF SECTIO N 35DD. 16. WITH REGARD TO THE CONSULTANCY CHARGES PAID OF RS.5,50,000/-, THE REVENUE SWAYED AWAY BY THE MENTI ON OF SPECIFIC PROJECT EXPENSES AND TREATED THEM AS CAP ITAL EXPENDITURE IN NATURE WHEREAS THE FACT REMAINS THAT THE CONSULTANT HAS BEEN PAID FOR PROVIDING SERVICES IN DEVELOPMENT OF NEW PRODUCTS AND ENHANCEMENT OF EXISTING FEATURE S ON THE WEBSITE WHICH CANNOT BE TREATED AS A NEW ARENA OF T HE BUSINESS OPERATIONS. HENCE, THE AMOUNT PAID SHOULD BE TREATE D AS REVENUE EXPENDITURE. 17. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED AND THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTIC AL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 06/08/2021. SD/- SD/- (AMIT SHUKLA) (DR. B. R. R. KUMAR) JUDICIAL MEMBER ACC OUNTANT MEMBER DATED: 06/08/2021 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR